Is corporate responsibility vindicated by the financial crisis?
Judging by public and political outrage over executive compensation, lack of transparency, complex financial products and other hallmarks of Wall Street’s gilded age, it appears so.
Sure, some of that anger is misplaced, and the concept of the ethical company has always faced criticisms, none stronger than economist Milton Friedman’s famed line that the “social responsibility of business is to increase its profits.”
But there’s a good argument that companies that took business ethics seriously before the crisis have sailed through it; those that favoured short term profits over long term viability have not.
Writing in BusinessWeek, Vivek Wadhwa of Harvard and Duke draws out some interesting examples:
Charles Schwab & Co. has largely avoided the huge fallout. So has US Bancorp. A quality both of these companies share is a laser-like focus on customer service and on honesty and transparency. This comes from their cultures…
…A number of companies…either started out with or developed an internal voice and a moral compass. That voice has played a key role in keeping these companies on top. The list of these companies reads like a Who’s Who of American business’ management rock stars. Some, such as Goldman Sachs, have been discredited. But the majority, including Cisco Systems, Southwest Airlines, and Costco Wholesale, among others, have sailed through this crisis with flying colours.
On the other hand, Wadhwa says companies like Bank of America and Citigroup suppressed ethical dissent, contributing to their — and Wall Streets — epic fall. “The internal voice of conscience and purpose of these institutions was silenced by a maniacal focus on short-term profits and whatever scheme would bring them in,” he says.
Wadhwa’s conclusion is this:
The moral here is fairly simple: When a company’s ethical compass is pointing true north, everything else falls into line. This isn’t to say that companies with great ethics don’t fail. But it does seem to indicate that companies without good ethics are far more likely to fail due to their inability to sustain or hear an inner voice to guide them through the dark times to the light.
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